Here's How Facebook Becomes a Multibagger

How much do you trust Facebook (NYSE: FB  ) ? Enough to let the social network show you ads based on your browsing history? A forthcoming service called Facebook Exchange proposes exactly that, TechCrunch reports.

Still in the testing phase, Facebook Exchange, or FBX as some are calling it, will use a common tactic called "retargeting," wherein third-party sites drop a small piece of code called a cookie unto a user's browser. FBX would then read the code and present targeted pitches to users when they return to the social network.

Think of it like this. Say you're browsing Facebook and see that a friend is headed off to Hawaii for vacation. You leave the site and log into priceline.com to check prices to take your family on a similar trip, but after a modest amount of research, you decide not to buy.

As you leave, Priceline drops a cookie unto your browser and then bids for the right to show you an ad via FBX. The next time you log into Facebook, you see a display ad pitching fares you might have missed.

We don't yet have a firm timetable for when FBX will go live. Nor do we know exactly what privacy controls users will be granted to users in working with the system. Still, if handled well, FBX could be a huge step forward in competing with Google (Nasdaq: GOOG  ) .

Up until now, advertisers have looked at the two companies differently. Google has done well catering to direct marketers because of the precise nature of connecting keywords to Web searches. Facebook has done well pitching itself as a brand-advertising platform, where promoted pages pull in fans and increase engagement in the digital realm.

Facebook Exchange could bring in more direct marketing dollars -- especially if the plan includes tying into an existing search partnership with Microsoft's (Nasdaq: MSFT  ) Bing -- while preserving the social network's stature as a platform for brand building.

That's a powerful one-two combo, and probably more than enough to justify buying at current prices. I'm keeping open a bullish CAPScall on Facebook as a result.

Socially aware
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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Microsoft, Google, and Facebook. Motley Fool newsletter services have recommended buying shares of Microsoft and Google and creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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